TreeSap Farms - Case Summary

Business Description

Headquartered in Houston, TX, TreeSap Farms, LLC ("TreeSap Farms"), along with its Debtor affiliates (collectively, "TreeSap" or the “Company”), is a leading U.S. horticultural producer specializing in shade trees, shrubs, and ornamental plants.

The Company sells its products to a diverse customer base that includes retail consumers, landscape contractors, and landscape architects. Its portfolio features over 5,000 unique plant varieties across more than 15 categories, with over 70% of revenue derived from shrub evergreen, tree evergreen, edible, and tree deciduous plants.

• TreeSap’s customer mix is historically split evenly between retail channels, which include many of the nation’s largest home improvement and general merchandise retailers, and wholesale channels serving prominent regional landscape firms.

In fiscal year 2024, the Company generated EBITDA of approximately $11.6 million on $170.6 million in total revenue, a decline from the $23 million in EBITDA and $179.2 million in revenue reported for fiscal year 2023.

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Corporate History

TreeSap's origins trace back to 2001, when it was founded as TreeTown USA with the opening of its first farm in Glen Flora, TX.

• In 2015, a management/ownership group led by the current CEO acquired TreeTown USA.

Over the next six years, the Company strategically expanded its national footprint through significant acquisitions, including Village Nurseries in 2017 and Hines Growers in 2018, both based in California. These transactions solidified TreeSap's position as one of the largest growers of outdoor nursery plants in the U.S.

Organizational Structure

TreeSap Farms, LLC is the primary operating entity, owning or leasing substantially all assets and employing all workers. The common equity in TreeSap is owned by its CEO and trusts controlled by the CEO and his immediate family, while preferred equity units are held by TreeTown/ARM Fund LLC. Key Debtor subsidiaries include:

• TreeSap Florida, LLC: Formed in 2015 as the acquisition vehicle for an unrelated nursery business, it holds certain Florida assets and serves as a guarantor on financing obligations.
• TSV Reco, LLC & TSV Opco, LLC: Formed in 2017 to acquire the real and personal property assets of Village Nurseries, respectively. They hold certain California assets and are guarantors on financing obligations.
• TSH Opco, LLC: Formed in 2018 as the acquisition vehicle for assets from Hines Growers. It holds certain California assets and is a guarantor on financing obligations.

Non-Debtor Boxwood Solutions, LLC is a joint venture with an unaffiliated entity seeking to monetize specific plant intellectual property. TreeSap Farms owns 50% of Boxwood, which has minimal operations and assets, with TreeSap valuing its stake at approximately $50,000.

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Operations Overview

TreeSap operates an extensive network of 15 farms across California, Texas, Florida, and Oregon, organized into three divisions: Northwest, Southwest, and Southeast U.S. The Company owns seven of its farm locations and leases the remaining eight, covering more than 6,700 acres of production. TreeSap also maintains a West Coast office in Orange, CA.

Seasonal Business Model

The Company’s operations are highly seasonal, with a peak selling season that begins in mid-March and extends through June. Production expenses ramp up in January, while sales volumes remain low until the spring.

• This seasonality creates significant fluctuations in revenue, which can reach as high as $27 million per month during peak season but fall well below $10 million per month in December and January.

Production Model

TreeSap grows over 33 million plants annually, utilizing a detailed production planning model to optimize its product mix based on customer demand. Certain crops are subject to third-party intellectual property rights and royalty obligations under licensing agreements.

Workforce

The Company employs approximately 1,444 full-time employees, comprising 1,280 hourly workers and 164 salaried staff. Due to the seasonality of its operations, TreeSap also relies on contract and temporary employees to support peak demand periods.

• The Company's workforce is essential to maintaining its inventory of live plants, which require daily care and would rapidly perish without adequate staffing, leading to a material impairment of enterprise value.

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Prepetition Obligations

As of the Petition Date, the Debtors report approximately **$24 million** in general unsecured trade debt in addition to secured debt obligations under a primary credit facility, a subordinated note, and various capital leases. The Company’s prepetition capital structure is summarized below:

Prepetition Credit Facility

• The Debtors’ primary funded debt consists of approximately **$186.7 million** outstanding under a credit agreement with Capital Farm Credit, ACA, as agent. The obligations are secured by first-priority liens on substantially all of the Debtors’ real and personal property.
  • The facility is composed of several notes, including a $155.2 million Operating Note that matured on Feb. 1, 2025, a $19.4 million Real Estate Term Note, and a $10 million Term RLOC Note.

Subordinated Debt

• Approximately **$12.6 million** is owed to HCR Moorpark Investors LLC under a subordinated debt claim against Debtors TSV Reco and TSV Opco.
  • The claim arises from a judgment lien against Village Nurseries, whose real property was subsequently acquired by the Debtors.
  • HCR Moorpark’s asserted liens are expressly subordinated to the liens held by the Prepetition Lenders.

Capital Leases

• The Company has outstanding obligations under various equipment and capital lease agreements with lenders including:
  • Farm Credit Leasing Services Corporation
  • Onset Financial, Inc.
  • AvTech Capital, LLC
  • Regents Capital Corporation

Unsecured Debt

• The Debtors carry approximately **$24 million** in trade debt owed to vendors and service providers.
• The Company is also subject to contingent liabilities related to potential future earn-out obligations from a 2022 acquisition and a 2015 business combination.

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Events Leading to Bankruptcy

Operational and Financial Pressures

Over the last several years, TreeSap faced significant operational and financial headwinds, primarily driven by substantial weather-related losses in its Southern California operations that negated profits from its other regions. The Company’s financial condition was further strained by its highly seasonal cash flows, an increasing debt burden, and looming maturities under its prepetition credit facilities.

• The Southern California region suffered from drought conditions in 2022, followed by unusually wet weather in 2023 and 2024, leading to reduced sales.
• From 2022 to 2024, the Company’s debt load grew by **$22.5 million** due to increased working capital needs and lower-than-forecasted profits, while interest expenses more than doubled.

In response, TreeSap implemented comprehensive turnaround initiatives, including a strategic overhaul of its Southwest division. The Company reduced its annual expenses by **$30.1 million** between 2021 and 2024, which included a headcount reduction of approximately 240 employees. However, due to the long growing cycles in the horticultural industry, the financial benefits of these measures were not realized quickly enough to address its immediate liquidity needs.

Failed Refinancing Efforts and Prepetition Negotiations

In July 2024, the Company retained Armory Securities as its investment banker to pursue refinancing and other strategic alternatives. While Armory’s outreach generated interest from third-party financing sources, these proposals were contingent on maturity extensions under the prepetition credit facilities, which the Prepetition Lenders were unwilling to provide.

• By late 2024, with third-party options exhausted, the Company pivoted to urgent negotiations with its Prepetition Lenders to obtain new capital and extend maturities.
• On Dec. 31, 2024, the parties reached an agreement for $3 million in additional funding in the form of a protective advance, which required the Company to engage a chief restructuring officer. TreeSap subsequently retained Bret Jacobs of The Keystone Group as CRO.

Pivot to Chapter 11

Despite the Company’s belief that an out-of-court solution would maximize value, the Prepetition Lenders declined to provide further liquidity outside of a court-approved process. After an additional $3.2 million in funding was provided on Jan. 28, 2025, conditioned on a bankruptcy filing, the Debtors commenced their Chapter 11 cases.

• The Company entered Chapter 11 to stabilize operations with a critically needed capital infusion and pursue a sale of substantially all of its assets.
• To fund the process, the Debtors have negotiated a postpetition financing facility with the Prepetition Lenders that will provide the liquidity necessary to administer the cases and support the sale process.